Abstract

Despite extensive public discussion of the high cost of legal education and student debt levels, too few critics show creativity in thinking about the optimal mechanism for funding a legal education. This Article proposes — and explores the legal and practical implications of — a new model of law-school financing called an income-based repayment swap (“IBR Swap”). The IBR Swap is a student loan derivative: a novel idea that improves upon existing income-share contracts. Under an IBR Swap, students still borrow money from a bank or the government to pay for their legal educations. But students then enter into contracts with a financial institution under which the institution agrees to make the students’ loan payments and the students agree to pay the institution a percentage of income. An IBR Swap is a student’s exchange of a fixed obligation to lenders for an income-based obligation to a financial institution. The parties exchange no money upfront, which distinguishes this form of transaction from existing income-share and “human capital” contracts that face barriers to enforcement. This Article advances the debate over costs and financing of legal education by presenting a method of education finance that departs from the current debt model and income-based alternatives. It presents the IBR Swap in order to incite critical consideration of both the potential and the limitations of private-market mechanisms for law school finance. As such, it advances assessment of what is the most impactful role for the government in ensuring access to law school.